Posted
by
samzenpus
on Sunday November 25, 2012 @07:15PM
from the wage-reduction dept.

First time accepted submitter ASDFnz writes "The reward for successfully completing a block (also called mining) is about to halve from 50 bitcoins to 25. From the article: 'Bitcoin is built so that this reward is halved every 210,000 blocks solved. The idea is as bitcoin grows the transaction fees become the main part of the reward and the introduction of new bitcoins slows down to a trickle. This also means that there will only ever be 21,000,000 bitcoins in circulation.' You can watch the countdown here."

It's a proof-of-work calculation that records a transaction history. Basically, it's to prevent double-spending; if someone attempts to transfer the same bitcoin to two different people, the person who gets it is the person who had more computational effort go into recording them as having it. If the amount of computational effort in recording transaction histories were low enough, someone could double-spend by recording an alternative history on a powerful computer and having it supersede the transaction history everyone thought they were using.

In order to encourage people to put effort into recording the history, there's a reward for doing so. This lead (perhaps predictably) to "mining", where people race to record the transaction history first in order to get the reward.

So there is a purpose to mining, but it's only to keep the Bitcoin system itself running. If people stopped mining (perhaps because the reward got low enough), Bitcoin would collapse. (It's envisaged that once the mining reward gets low enough, people transferring bitcoins will pay a transfer fee to the miners to encourage them to keep mining, and they'd get their income that way instead.)

Here's the highest-level view possible: a bunch of anarchists thought that an interesting cryptographic trick would let them have money without government, and then a bunch of opportunists realized that they could scam people with Bitcoin much in the same way that bankers scam people with unusual investments.

Gold has actual mechanical uses (electrical contacts.) It also has bauble value.

BitCoins have zero intrinsic value, and they require electric and Internet connectivity to be used. Gold requires a civilization level just a step above pure anarchy to be useful.

IMHO, it is sort of suspicious that there is this ramp where early adopters get these bonuses, and people hopping on late end up having to put a lot more resources in for the same coins... that combined with the value of the currency going up/down in insane swings, makes it useless as anything other than a novelty.

There are services that will do this for you (ie. allow you to buy from Amazon using 'coin.) Admittedly, you're then beholden to that third-party who actually does the buying in your stead, rather than direct with Amazon, but nonetheless, without changing bitcoin into another currency, you can buy stuff on Amazon, and eBay, and a number of other sites, not to mention the ton of smaller, but no-less-useful sites that allow you to trade directly using Bitcoin...

Yes. You can charge 0.00000001 Bitcoins. (Although it would generally take a much larger fee than that to get timely transaction processing)

If more divisibility than this were ever required, this could be migrated to, provided the majority of network participants agreed.
Increasing the divisibility this way would probably be uncontroversial if ever it were in such widespread use that it made sense - but other features such as the 21 Million limit would never get majority consensus to be changed.

People already pay mining fees, typically 0.0005BTC / transaction. Right now you get about 0.1 BTC in mining fees from a block, and 50 BTC from the built-in reward (which functions a a way of distributing bitcoin initially). As the reward halves every 4th year and number of transactions supposedly rises, a higher percentage of a miners income will stem from tx fees.

You can make a transaction without paying a fee, but not all miners will include your transaction in their block, and thus your transaction may take a long time to be confirmed.

'Hoarding' (saving) currency itself is only useful if the interest rates on all investments are so terrible (low, or maybe even negative) that you can't make money by investing in anything. But in a legitimate economy, that is not controlled by central banking and central government this does not happen, because the more money people save, the lower the interest rate becomes, because there are so many savings, their value is going down. USA 1800 to 1917 has conclusively shown that money that is intrinsically valuable and is slightly deflationary is still not 'hoarded' but is used for investments because there is no manipulation by the central government. Central government was basically irrelevant, it wasn't spending much on anything because it wasn't doing much of anything, and so it was cheap and didn't meddle with individuals investing their money in businesses, whichever way they wanted.

There is a huge disconnect today between value of savings (interest rates) and real existing savings. The interest rates are so manipulated by the central banks that it seems like the system is flush with cash (is that the saying?) The interest rates are at historic low, actually they are negative, and the only people who can find yield are banks that borrow at 0% from the Fed and then lend to the Treasury at 2-3%. This means that the government has completely crowded out all private investments while sending an insane fake signal into the market that there are huge savings in the system, but there are none, the system is deep in debt, it has no savings. Whatever meagre savings that individuals manage to collect are irrelevant, because their share of government debt has gone through the stratosphere.

I think that Bitcoins have their use, but they have no intrinsic value at all, they are based on confidence, always were, based on the confidence in the protocol. Bitcoins are valued because people trust the protocol, and surely that protocol is much more trustworthy than any government and any opaque bank. So the interesting part about Bitcoin is will the trust in protocol be enough, because again, there is no intrinsic value?

So when you say: "Bitcoins will perish because people hoard them", the point is that hoarding something without any use that can be used to invest doesn't make sense if the economy allows any investments in the first place (more precisely if the central government doesn't prevent investments, which is the case now).

However hoarding a resource that has no intrinsic value is dangerous. If you want to hoard and not to invest, you do not use Bitcoin, I think people understand that, that's why it will not be a problem in itself. Bitcoin is for circulation, it's not a good safe haven, it has no intrinsic value.

For example storing 1,000,000 USD in Bitcoins for too long is in fact dangerous, you do not want to do that. Either you invest that money or store it in something else (not dollars, not cash, either an investment vehicle or real money, gold or other inflation hedges, property, valuables, etc.) and let people keep trading in Bitcoins.

----As a side note I heard some people talking about using flash drives to pay in Bitcoins, but this breaks the way that the protocol prevents double spending, if you copy your Bitcoins onto a thousand flash devices and pay with them somehow and they are not verified by the seller, you can doublespend plenty. So a seller will not accept your file unless he can record the transaction in the network, which is only a prudent thing to do, otherwise it's the seller who will be out of money.

Except one can not buy bitcoins with a credit card or paypal,1. because these companies hate bitcoin and what it represents for them2. because of a high chargeback risk no one who doesnt trust you would sell you bitcoins for paypal